Good morning and welcome to the Alijan 3rd Quarter 2024 Coherence Call. All participants, please be listened early mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Josh Pokavinsky, Vice President of Investor Relations. Please go ahead.

Thank you, Sasha. Good morning, everyone. Thank you for joining us for Allegiant's third quarter 2024 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagners, Senior Vice President and Chief Financial Officer of Allegiant. Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in today's call are available on our website at investor.legion.com. This call will be recorded and archived on our website. Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements. Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation and the financial tables of our press release for further details. Please go to slide three, and I'll turn the call over to John.

Thanks, Josh. Good morning, everyone. Thanks for joining us. We can sum up this quarter with stable markets and strong execution. 2-3 marks another quarter of strong execution by the entire Legion team, resulting in revenue growth and margin expansion, demonstrating the resilience of our business model. I'm especially pleased with the top-line growth in the quarter, and overall, demand remains stable and is supported by our broad-end market exposure and specification expertise. Institutional markets have continued to lead, while commercial verticals have been more mixed. We have accelerated capital deployment in 2024, returning cash to shareholders, and growing our business with accretive acquisitions. Our strong cash generation, balance sheet, and pipeline of opportunities continue to position us well for future capital deployment, creating long-term value for our shareholders. As we push to year end, I feel we're performing at a high level. We're raising our full-year guidance for EPS, and we're affirming our overall revenue with some small updates at the segment level. Additionally, we're affirming our available cash flow outlook. Later in the call, we'll discuss these full-year updates as well as provide some initial thoughts on how we see the markets shaping up for next year. Please go to slide four. Let's take a look at capital allocation. First, we continue to invest in the core to drive organic growth. In June, we introduced a new product line of exit devices, the Von Dupren 70 Series. Our 70 Series combines the quality and trust Von Dupren is known for as the creator of this product category with the performance and value ideal for many modern applications, ranging from warehouse, industrial, office, multifamily, retail, and hospitality spaces. This new product line is backed by our expert safety and security consulting, specification writing, technical support, and training. And it highlights what we do well with our flagship brands like Von Dupren. we innovate for new markets while still expanding the core, a capability that's difficult to match but is a strength of Allegiant. With the Von Dupren 70 series, we're leveraging more than a century of experience in developing high-performance exit devices to meet the safe entry and egress needs of customers today. Allegiant continues to be a dividend paying stock. In the third quarter, this amounted to approximately $42 million in cash return to shareholders. Turning now to M&A, and as announced last week, we recently closed the acquisition of Sauce Door Hardware. Sauce manufactures premium door hardware, primarily sold across North American non-residential markets. Best known for their line of invisible hinges, Sauce complements our core mechanical portfolio with fire-rated heavy-duty solutions for industrial, commercial, and institutional spaces. And like our other well-known brands, Sauce is an industry pioneer with more than a century of experience that makes it a category leader today. Sauce is a small bolt-on with Elysian-like margins. We expect Sauce to deliver solid returns, accretive to EPS in 2025 in a space we know well as a pure-play leader in security and access. Lastly in the quarter, we made share repurchases amounting to approximately $40 million. To sum up this slide, Elysian will continue to take advantage of the strong cash generation our business drives for the benefit of our shareholders. Mike will now walk you through the third quarter financial results.

Thanks, John, and good morning, everyone. Thank you for joining today's call. Please go to slide number five. As John shared, our Q3 results reflect solid performance from the entire Allegiant team. We continue to execute at a high level, delivering another quarter of strong margin expansion with mid-single-digit top-line growth, driven by price, volume, and acquisitions. Revenue for the third quarter was $967.1 million, an increase of 5.4% compared to 2023. Organic revenue increased 3.3% in the quarter as a result of favorable price and volume. We saw strength within our America segment, with international organic revenue relatively flat in the quarter. Q3 adjusted operating margin and adjusted EBITDA margin both increased by 100 basis points, driven by price and productivity in excess of inflation and investment, as well as favorable volume leverage. I am pleased with the operational execution and margin expansion in 2024. Adjusted earnings per share of $2.16 increased $0.22, or 11.3% versus the prior year. Strong operational performance, accretive capital deployment, and favorable interest another, more than offset headwinds from higher tax. Finally, year-to-date 2024 available cash flow was $388 million, which was a 21.1% increase versus last year. I am pleased with our cash flow and working capital management, and will provide more details a little later in the presentation. Please go to slide number six. The slide provides an overview of our quarterly revenue. I will review our enterprise results here before turning to our respective segments. Organic revenue grew 3.3% in the quarter, which included price realization of 1.8% and volume growth of 1.5%. Acquisitions drove approximately two points of growth in the quarter. Additionally, currency was a slight tailwind, bringing total reported growth to 5.4%. Q3 revenues was sequentially consistent with Q2 and reflects a more normal seasonality compared to an unusual 2023, as we indicated previously. Please go to slide number 7. America's segment delivered strong operating results in Q3. Revenues of $782.4 million was up 5.6% on a reported basis and up 4.1% on an organic basis. Organic growth included both favorable price and volume in the quarter. Reported revenue included 1.6% growth from the June acquisitions of Krieger and Unicell. Our non-residential business increased mid-single digits organically in the quarter as institutional end markets remained stable. Our residential business was up low single digits, similar to what we saw in Q2. Electronics revenue was down high single digits compared to Q3 last year, which included significant catch-up in volumes as supply change recovered from disruptions that we experienced in 2021 and 2022. It's worth noting Q3 electronic revenue dollars were flat sequentially to Q2 levels, generally following the seasonality of the rest of the business. We continue to believe electronics are a long-term growth driver for Allegiant. America's adjusted operating income of $231.1 million increased 9.7% versus the prior year period due to solid top-line growth and strong operational execution. Adjusted operating margin and adjusted EBITDA margin for the quarter were up 110 and 120 basis points respectively as we continue to drive margin expansion through price and productivity in excess of inflation and investments. Let's go to slide number eight. Our international segment had a solid third quarter. Revenue of $184.7 million was up 4.4% on a reported basis and up 0.2% organically. Acquisitions were a tailwind this quarter, positively impacted reported revenue by 2.9%, driven by the Dorcas and Boss businesses. Currency was also a tailwind, contributing 1.3 points of growth. International adjusted operating income of $25.2 million increased 6.3% versus the prior year period. Adjusted operating margin and adjusted EBITDA margin for the quarter increased 20 and 10 basis points respectively. Margin expansion was driven by price and productivity exceeding inflation and investments, offsetting the volume decline. Please go to slide number nine, and I will provide an overview of our cash flow and balance sheet. Year-to-date available cash flow came in at $388 million, up $67.6 million versus the prior year. This increase is driven by higher earnings and improvements in working capital, partially offset by higher capital expenditures. Next, working capital has a percent of revenue improved as we continue to focus on working capital efficiency to convert earnings to cash. Finally, our balance sheet remains strong, and our net debt to adjusted EBITDA is at a healthy ratio of 1.7 times. It's worth noting our gross debt and cash balances at September 30, 2024, include the proceeds from our $400 million senior note issuance in Q2, which were used to repay a $400 million senior note on October 1. This results in a slightly higher gross leverage at the end of the third quarter, but has no impact on net leverage. Our business continues to generate strong cash flow, and our balance sheet supports continued capital deployment. I will now hand the call back over to John. Thanks, Mike. Please go to slide 10.

Legion remains on track for record results in 2024. We are affirming our total reported revenue growth outlook of 2.5% to 3.5%. We're also affirming our total organic revenue growth outlook of 1.5% to 2.5%, although we now expect international organic revenue growth to be slightly higher and America's organic growth to be slightly lower than what we previously shared with you. The international team has executed well as markets have been slow the past two years and has now seen some stability in the mechanical portfolio. In the Americas, we're lapping record multifamily markets, which have slowed with higher interest rates this year. On balance, we'd still describe our markets as stable, particularly in the institutional verticals. We'll share more color on our markets on the next slide as we look forward to next year. Based on our strong operational performance in the third quarter, capital deployment, and a revised tax rate, we are increasing our adjusted earnings per share outlook to a range of $7.35 to $7.45. cents. Lastly, we're affirming our outlook on available cash flow to be in the range of 540 to 570 million. Please go to slide 11. As you know, we'll provide Allegiant's formal 2025 financial outlook during our February earnings call, but today we'd like to share a preliminary view on our key markets for next year. Overall, demand has been stable throughout 2024. Last quarter we highlighted what makes our business model resilient from our front-end spec engine that pulls product through the channel to our broad and market coverage and large install base and of course strong execution by one of the safest most engaged workforces in the industry complemented by what is without a doubt the best distribution channel that the industry has as we approach 2025 we see many of the same dynamics in place and do expect to grow organically Starting with the Americas, macro indicators remain rather mixed. Institutional markets are stable and showing signs of modest growth. Commercial markets have been muted, and while we're encouraged by improvement in some indicators, the long-cycle nature of our business results in a lag versus planning and start data. Based on past starts, multifamily is one market likely to be slower as we enter 2025. We do expect America's residential markets to grow next year. As a reminder, we're mostly exposed to residential aftermarket and view existing home sales as an important driver of activity for us. For international, macro indicators remain soft. However, we have been in this environment for most of the last two years. As such, more moderate comparisons and continued strong execution should support growth in 2025. Finally, Allegiant has a healthy balance sheet and strong cash generation that give us flexibility as we enter the new year. we do expect capital deployment to drive additional earnings per share growth focused on returns for our shareholders please go to slide 12 in summary q3 marks another quarter of strong results for a legion our team continues to perform at a high level driving revenue growth and margin expansion demonstrating the resilience of our business model we've seen stable markets this year and have accelerated capital deployment and heading into the last few months of 2024 we're focused on meeting customer needs and delivering on our commitments to shareholders. With that, let's turn to Q&A.

We now begin the question and answer session. To ask a question, you may press Start and 1 on your telephone keypad. If you're using a speakerphone, please pick up your answer before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Start and 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question is from Joe Ricci with Goldman Sachs. Please go ahead.

Hi, thanks for the question. This is Vivek Srivastava on for Joe. My first question is just on the America's non-residential business. The mid-single-digit growth this quarter is pretty impressive in light of all project delay currently we've been hearing intra-quarter. So maybe could you help us understand how is your visibility over the next 12 months based on specification activity in this vertical? And then can you also provide any color on residential spec activity?

Yeah, so let's talk non-res first, and thanks for the question. I'd say, you know, consistent with the slide and the prepared remarks, we do continue to see organic growth. We do continue to see non-res overall as stable with some mix there in some of the commercial verticals. Like we indicated, multifamily, we do expect it to be soft for a while. But on the institutional side, looking at leading indicators like Dodge Starts and Dodge Momentum would be indicative of the kind of activity that we're seeing in the market. If you look at municipal bond issuance this year, it's been very strong, up almost 30% year to date. Which is an indicator of, again, spending in education, where safety and security are always on the list. And our advocacy and our activity promoting safe schools position us well to support customers there. So I think just consistent with what we shared with you on that last slide, we see overall stable markets for the foreseeable future, led by the institutional verticals, with some of the commercial verticals a bit more mixed. On the residential side, I think you asked about spec activity. We don't spec residential. We do participate primarily in the aftermarket on residential. We do see as the interest rate environment, if that continues to improve, we do see signs that both on the new build side as well as the aftermarket side, there are signs that are indicating growth.

Very helpful. And just a follow-up on just productivity, the equation pricing net of productivity in patients and investments continues to remain positive through the year. Curious, where are you in your productivity journey versus pre-COVID levels? What are the opportunities you see on key KPIs like plant utilization levels as we end through 2025.

Yeah, so really pleased with our productivity. If you recall, the last couple of years, 21 and the beginning of 22, we really ran into challenges in our supply chain that resulted in us being inefficient. If you fast forward to, you know, the 23 and 24, much more efficient where we can drive productivity. And when you look at the equation and how we like to look at it, it's the price and the productivity that cover the inflation and fund the investments. And so we've gotten margin expansion this year, really pleased with the expansion, as I mentioned earlier. And just know when you think of Allegiant, Allegiant's going to be driving the price and productivity to cover that inflation and fund investments on a go-forward basis.

Super helpful. Thank you.

The next question is from Julian Mitchell with Barclays. Please go ahead.

Hi, good morning. Maybe a first question just on the residential side of things. You know, thinking about the sort of market outlook for next year. You talk about recovering starts on slide 11. And I think it's about maybe just remind us it's sort of close to maybe, you know, 40% or so green field. So we just wanted to check that exposure. And, you know, when you look back historically at the business, what's the sort of typical lag from interest rates moving lower to you seeing some help in your top line, whether residential, greenfield, or repair and remodel? Any sort of context around how your thoughts on that market have changed in recent months?

Yeah, thanks for the question, Julian. And if you think of our resi business, certainly a little more is the aftermarket. So you can think of it as roughly a third of our business is aftermarket, retail being, I'm sorry, two-thirds aftermarket. I apologize. Two-thirds aftermarket, a third new build, and retail being the biggest piece. Think of like a Home Depot, a Lowe's, a customer like that, Amazon. And then with respect to building construction of new home, that could take, you know, six months to a year. It's not like an institutional building, so it is quicker responding to interest rates. And on the aftermarket side, I mean, that's consumer spending money. So it is less determinate or less long, I would say, from a timing of recovery when you think about versus the new build side.

That's very helpful. Thank you. And then as we're thinking about electronics, that market, you know, you talk about, you know, growth in both electronics, America's plus international next year. This year, I think still digesting sort of tough comps and the sudden easing of supply chain conditions. Remind us perhaps what's the medium term, you know, electronics growth assumption as you see it. globally. And as we think about 2025, you've had such volatility in recent years. Is a sort of trend growth realistic or we're still dealing with complications around comps and that type

of thing for next year? Yeah, Julian, appreciate the question. And you're exactly right. 2023 marked, you know, a lot of still wonky comps, particularly on electronics. And we're still dealing with, as you can tell, with the longest of the long tail of issues, particularly on a couple of high-volume electronic locks. We do see, I would say, a more normal comp environment in 25 and for the foreseeable future. We do still see electronics adoption growing. We do still see electronics replacement cycle just kind of starting. So I think those two combined, we would be very consistent in our feeling that this is a high single to low double digit growth driver for Allegiant over the cycle. And I think that's still our view as we look forward. Great. And you have

a chance of being in that range next year because of normal comps. I'd probably hesitate to give

too much of a breakdown of too much detail. We really intended just to give you a high-level look into the market, and the more specific detail would come in our February call for 2025 Outlook.

Understood.

Thanks very much. Thank you. The next question is from Joe O'Day with Wells Fargo. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just wanted to start on some of the 2025 comments And when you talk about a stable environment moving forward, I think, you know, also saying in a stable environment, you would expect organic growth, but just want to make sure that in terms of moving pieces year over year, some of the more notable would be, you know, resi potentially getting a little better, multifamily potentially with some headwinds. Just anything else in terms of as you look at pipeline and think about, you know, developments next year versus this year and how the market sort of changes?

Hey, Joe, this is John. Appreciate the question. And I think, yeah, the overall macro look we would just say is stable. We do see signs of America's residential improving. that's I think that's fair to say the degree of which we need to come back to you in February and give you more detail there on the non-res side our view would still be and I think again there's there's some some Dodge indices you can reference that show that in the non-res side the institutional verticals will still continue to lead the way there is still as we mentioned a lot of municipal bond issuances this year, which does provide funding in the K-12 vertical where we're quite strong. You know our business is a little bit heavily tilted to the institutional verticals as well. So you sum all that up, and there is mix in there, like you say, and it's fair to see multifamily has been kind of soft and probably stays kind of soft for a little while. Data centers, as you know, have been exceptionally strong. We participate very well there. And so you add it all up, stable markets, yep, and I think we do still see organic growth.

Terrific. I appreciate the color there. And then just in terms of the price-cost environment, and as you're looking out in terms of pricing and maybe fatigue from customers on inflation and how you're thinking about the pricing opportunity, environment and just in terms of timing for us and sort of when you would be going to market, you know, such that, you know, any anticipated price next year would be out there?

Yeah, Joe, we're still in an inflationary environment. And in an environment where there's inflation, look for Allegiant to drive pricing to cover the inflationary pressures. As to timing, we would always announce that to the channel before an earnings call. We have some history that you're pretty familiar with that you can get an idea of what the industry does. But just understand that, hey, we are in an inflationary environment. And as such, look for us to ensure that we manage the profitability by driving the pricing to cover the inflationary pressures.

Understood. Thanks a lot.

Thanks, Joe.

The next question is from Brett Lindsey with Mizuho. Please go ahead.

Hey, guys. This is Peter Kassa. I'm for Brett Lindsey. So just another on the spec side, what are you guys seeing just with the build-out in international spec rating, and just how is that trending?

Yeah, it's a good question. I appreciate that. I would say that has historically not been a strength for Allegiant, but it is things that we have been investing in capability. If you recall from our release earlier in the year, the acquisition of Boss Door Controls, that was also a step in the direction of more capability and more channel alignment with spec-driven business there in the UK. We've been building out human resources, human capability, human capital there for that capability in International. And I'd say it's early innings yet, but it is going to be an important part of the business as we go forward for International.

Cool, thanks. And then just, I know you're calling it the muni bond issue since being strong, feeding into education, but have you seen any change in demand there just related to the sunsetting of ESSER funding?

Yeah. Yeah, so ESSER was probably more directed at other products than ours, and so it wasn't much of a tailwind, and I don't see much change for our business there. Suffice it to say, you know, as schools get funding, they have a lot of things they need to direct those funds to. safety and security are paramount in those those budget exercises and I'd say you know we've released new products we continue to write specs that keep schools up to code we continue to consult we're very strong advocates for safe schools and you know some of the products that we showed you we highlighted as investing for organic growth on our quarterly calls are directed right there And they've hit a sweet spot in the market. We're happy with them. We think they add value to faculty and teachers. And I think that is a vertical, you know, critically important to our mission, but also has the tailwinds of pretty strong muni bond issuance here in this calendar year.

Perfect. Thanks, everybody.

As a reminder, if you wish to register for a question, you may press star and 1 on your telephone. The next question is from Robert Schulz with Bayert. Please go ahead.

hey guys thanks for taking the question um maybe first off here your commentary on spec activity seems to be slightly more positive than your largest competitor but within institutional they called out seeing some more weakness in the health care vertical are you seeing any weakness there and how would you describe any possible share gains over the past nine months

I appreciate the question, and I think, first off, you know, we don't give really specific detail on spec activity. It's just not, yeah, details we don't disclose, but I would just at a high level say our spec activity is in line with the overall macro commentary we've given you. in in terms of our our largest competitor look they're a great company they have great products they keep us on our toes they're tough to compete with i think uh consistent with past quarters any share gain that's happened out there has probably been at the expense of uh short line suppliers in the market who might have found some opportunity when we had supply chain problems but But overall, we feel good about the institutional verticals as a whole and continue to see institutional leading the way in the near term.

And then maybe on M&A, with SOS, does that help any specific vertical? And then maybe more broadly on M&A, I think you guys, correct me if I'm wrong here, but have done about five deals year to date. How do you think about the pipeline in the 25 and the cadence there? Do you see that playing out at a similar level to 2024? Or any incremental thoughts there would be appreciated.

Yeah, I appreciate that. And, yeah, we're very excited about the Sauce acquisition. It's a great team. It's a great product line. It's perfectly complementary to a business unit that we already have. So really nice add to the business. It will help our customers, and this is products that primarily serve the non-residential markets here in the Americas with some smaller amount of the sales in Asia Pacific. I would say overall we feel really excited about the pipeline that we're looking at. I would still feel consistent with past quarter commentary. The M&A environment is definitely better than it was for strategics in 22-23. And, again, excited about the pipeline. We have some good momentum going this year, as you mentioned. And I would say as we look forward, the objective won't be to pile up cash on the balance sheet. We will deploy it in the best interest of our shareholders. So as that means accretive acquisitions, you can look for us to continue to be disciplined like we have been. And when that means repurchase, we will do that at the right time too.

Appreciate the caller. Thanks, guys.

This concludes our question and answer session. I would like to turn the conference back over to John Stone, President and CEO, for any closing remarks.

Thanks very much. Thanks, everyone, for attending the call today. Again, a legion of stable markets, strong execution by a great team, united by a mission of making the world safer and more accessible. And now we look forward to connecting with you again in Q4.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.